Have Commodity Dollars Found a Bottom?

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Market Drivers September 14, 2015

Comm dolls find a bid
Chinese data continues to miss
Nikkei -1.63 % Europe 0.53%
Oil $44/bbl
Gold $1107/oz

Europe and Asia:
CNY Industrial Production 6.1% vs. 6.3%
CNY Fixed Asset Investment 10.9% vs. 11.2%
CNY Retail Sales 10.8% vs. 10.6%

North America:
No Data

It’s been an quiet and uneventful opening night of trade in the currency market with most of the pairs staying close to their Friday close amidst little fresh newsflow as the week begins. The only movement of note was the relative strength of commodity currencies which were all better bid despite generally negative economic data out of China.

Over the weekend China reported a slew of statistics showing with Industrial Production and Fixed Asset investment figures both missing their mark slightly while Retail Sales beat the forecast at 10.8% versus 10.6% eyed. Despite weaker than forecast results only the Fixed Asset Sales numbers showed a decline on a month over month basis suggesting that Chinese economic slowdown may be plateauing.

In the currency market the lackluster Chinese data was disregarded by traders and Aussie, Kiwi and Loonie all rose through Asian session and early European trade. The comm dollars came under a bit profit taking when the Shanghai sold off, but quickly regained their footing in European dealing trading near the highs of the session.

The price action in commodity currencies suggests that vicious one way sell off that has dominated trade since the start of may may be coming to an end and the pairs could be due for a small counter trend rally. With sentiment so negative skewed against the units and with many of the major banks forecasting further weakness the prospect of a short covering rally almost seems assured.

One possible reason for the rebound in commdollars aside from the fact that they are all technically oversold is anticipation that the Fed will remain stationary at this week’s FOMC meeting and will therefore allow the Aussie and the kiwi to maintain their interest rate advantage providing another month of profits for carry trade speculators. Although most market analysts expect both the RBA and the RBNZ to cut their benchmark rate further eroding their premium such cuts may not happen until the end of the year providing some time for traders to harvest the interest rate differentials.

With no US data on the docket today, the markets may continue their quiet ways as everyone focuses on the marquee event of the week – the FOMC decision on Wednesday 1800 GMT. For now the consensus remains that the Fed will hold and that suggests that the dollar may weaken going into the meeting as traders anticipate the announcement. With USD/JPY inching closer to the 120.00 level, the pair could breach it later today as shorts try to run the key stops amidst generally lackluster market tone.

Boris Schlossberg
Managing Director

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